VZCZCXRO0478
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0848/01 3421343
ZNR UUUUU ZZH
R 081343Z DEC 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 9117
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHJB/AMEMBASSY BUJUMBURA 3026
RUEHKM/AMEMBASSY KAMPALA 3564
RUEHLGB/AMEMBASSY KIGALI 1496
RUEHKI/AMEMBASSY KINSHASA 0344
RUEHNR/AMEMBASSY NAIROBI 1455
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MCC WASHINGTON DC

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000848 
 
SIPDIS 
 
DEPARTMENT FOR AF/E JTREADWELL, INR JBERNTSEN, FEHRENREICH 
STATE PASS USAID, USTR, USTDA 
COMMERCE FOR ROBERT TELCHIN 
TREASURY FOR REBECCA KLEIN 
 
E.O. 12958: N/A 
TAGS: ECON EAID PGOV TZ
SUBJECT: DONOR FRUSTRATIONS WITH TANZANIA 
 
REF: 2008 Dar es Salaam 809 
 
DAR ES SAL 00000848  001.2 OF 002 
 
 
¶1.  SUMMARY. During the late November Annual National Policy 
Dialogue among the Government of Tanzania, donors, and civil society 
organizations, donors expressed frustration with both the lack of 
GOT progress in many areas since the previous year's meetings and 
with the poor quality of the dialogue.  Particular areas of concern 
include recent lack of progress on anti-corruption, the business 
environment, and public financial management, as well as the 
longer-term issues of persistent income poverty and the increasing 
impact of rapid population growth.  Privately, the other leading 
donors acknowledge that their leverage with the GOT is limited, 
because the GOT knows that the pressure in capitals is to maintain 
or increase funding levels to stable, relatively well governed 
Tanzania.  End Summary. 
 
¶2. Government, donors and civil society met over several days in 
late November to review progress on poverty reduction and indicators 
of achievement tied to General Budget Support.  (Note: Roughly 12.5 
percent of Tanzania's annual budget comes from direct donor support; 
the figure rises to 33 percent when basket and project funding is 
considered.)   Tanzania is entering the final year of its five-year 
national strategy for growth and reduction of poverty, known by its 
Swahili initials as "Mkukuta," and has started planning for "Mkukuta 
II."  During the meetings, donors expressed their dissatisfaction 
with sparse high-level GOT participation, limited opportunities for 
dialogue, and the GOT's lack of consultation with donors in the 
development of Mkukuta II. Donors are particularly concerned with 
the GOT's slow progress and failure to include donors in the review 
of the first Mkukuta, such that planning for the second round is 
proceeding without sufficient perspective on the accomplishments - 
and failings - of the first.  (Comment: Although donor complaints 
about "quality dialogue" are perennial, the heightened intensity of 
feeling this year reflects both a greater perception of GOT 
disengagement and concerns about lack of progress on substance.  End 
comment.)  The principal GOT interlocutor, Finance Minister Mkulo, 
was alternately aggressive and conciliatory, calling for an 
evaluation of donors' adherence to their commitments but also 
offering to address areas of disagreement (privately). 
 
Corruption and Business Environment 
----------------------------------- 
¶3. Donors took the GOT to task for stagnation in efforts to fight 
corruption and improve the business environment.  The 2008 Dialogue 
was preceded and immediately followed by Tanzania's first 
prosecutions in grand corruption scandals (ref); since then, there 
have been no new high-level prosecutions.   The Director General of 
the GOT's anti-corruption body (PCCB), Edward Hoseah, defended his 
agency's record as having increased overall prosecutions and 
continuing to obtain convictions (albeit in petty corruption cases). 
 Hoseah also argued that Tanzania's decline in Transparency 
International's Corruption Perception Index could be attributed to 
increased media reporting on corruption over several years and 
pointed out that Tanzania remains ahead of Kenya and Uganda in 
perceptions of corruption.  GOT officials acknowledged problems with 
Tanzania's business and investment climate but called for the donors 
to be patient as the government developed a new round of reforms. 
 
Persistent Poverty 
------------------ 
¶4. To the consternation of donors and the GOT, Tanzania's sustained 
record of macroeconomic stability and economic growth in the 2000s 
has not translated into a reduction of income poverty.  The 2008 
Household Budget Survey showed that from 2001-2007, the proportion 
of Tanzanians living below the national poverty line fell from 38 
percent to 33 percent.  Because of rapid population growth, the 
absolute number of the poor increased by over a million.  With the 
GOT's increased political emphasis on agriculture, donors are 
pressing for measures that would include (or principally benefit) 
the poor in new agricultural policies and investments.  While the 
GOT continues to see population growth as a sensitive topic, it has 
indicated a willingness to engage in dialogue with donors on the 
subject. 
 
Donor largesse to continue 
-------------------------- 
¶5. During the Policy Dialogue, donors warned the GOT that lack of 
progress against corruption and in improving the business climate 
could put at risk continuation of current high levels of donor 
 
DAR ES SAL 00000848  002.2 OF 002 
 
 
support.  Indeed, there have been some changes to funding over the 
last six months in relation to donor concerns about governance and 
corruption issues.  The UK declined to grant Tanzania a general 
budget "performance bonus" and the Netherlands reduced its level of 
direct budget support (in relation to a specific investment 
dispute), although both governments have essentially maintained 
their overall support levels by redirecting funding to projects. 
The World Bank lowered its ceiling for Tanzania's access to 
concessional loans, but is also planning supplemental funding in 
relation to the global financial crisis.  Privately, some donors 
have told us that whatever their misgivings about both the process 
of dialogue with the GOT and Tanzania's somewhat lackluster 
achievements, they are unlikely to substantially reduce their 
support here.  As with our Millennium Challenge rankings, where 
Tanzania scores well against its low-income peers, other donors 
continue to consider Tanzania a relatively good bet for effective 
use of funds.  Some of our donor colleagues complain that pressure 
from headquarters prevents them from making a serious threat of 
reducing funding. 
 
Tanzania's 2009/10 budget: a snapshot 
------------------------------------- 
¶6. The GOT's current-year budget (July 1, 2009 to June 30, 2010) of 
Tsh 9.5 trillion (USD 7.3 billion), up 32 percent from the prior 
year, builds on a several year trend of double-digit increases and 
reflects both election-year political realities and a stimulus 
response to the impact of the global economic crisis.  Education (18 
percent), infrastructure (11.5 percent) and health (10 percent) 
continue as the leading sectors for expenditure, while agriculture 
(7 percent, up from 6.4 percent) and water (3.7 percent, up from 3.2 
percent) saw the greatest increases, in keeping with the GOT's 
"Agriculture First" policy.  Despite the overall increase in the 
budget and Tanzania's ongoing power problems, energy sector funding 
(3 percent) declines by nearly a quarter under this budget.  Outside 
development-related sectors, home affairs including law enforcement 
(4 percent) and defense (3 percent) grow slightly faster than the 
overall budget. 
 
LENHARDT